ECB: Dovish taper

According to analysts from Brown Brother Harriman, the ECB delivered as expected, on what appears as a victory of the doves. They noted that a close of EUR/USD below yesterday’s low would be a bearish development.

Key Quotes:

“The ECB delivered what the market expected in terms of the size and duration of the asset purchases. The ECB initial statement also included a dovish reminder of the extent of the unorthodox monetary policy. The full allocation of the fixed rate reports will continue as necessary. The proceeds from maturing issues will be reinvested for an extended period, and rates will remain at current levels well past the end of asset purchases.”

“The "lower for longer" scenario appears to be a victory for the doves on the ECB, and is consistent with the Draghi's call for "patience and persistence." Draghi seemed intent is encouraging the market to push out in time when the first hike may be delivered. The fixed rate and full allocation of refinancing operations will continue to at least the end of 2019. The ECB could lift its negative deposit rate while the full allotment of fixed rate repos continues, but it seems unlikely to be delivered as soon as the market expected, which was early 2019.”

“The euro recorded a low just below $1.1740. A close below yesterday's low would be seen as a bearish development. We suspect the $1.18 area offers resistance. A break of the lower end of the recent range, around $1.1725 is needed to signify anything of importance.”

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